Payments Conference Tries to Blaze a Bright Trail Through Dark Times

WAILEA, Hawaii -- The meeting planners at PSCU Financial Services, the payments CUSO for more than 500 of the nation's credit unions, wanted to emphasize the positive at their annual Member Forum this year. The theme of the event, carpe diem, seemed to carry the message of pluck and optimism in the face of serious obstacles. But despite PSCU's best efforts, the ongoing economic crisis and its impact on credit unions overshadowed even the bright sunshine offered by the meeting's Hawaiian location.

Acting as opening master of ceremonies at the event, Mike Yatros, group executive for PSCU client relationships, told attendees that the organization had thought about canceling the meeting at the Grand Wailea resort on Maui because of the economic and banking crises continuing impacts.

"As many of you know, PSCU has had some very good years recently," Yatros told the group of more than 500 credit union, CUSO and vender executives that made the long flight to Maui for this year's meeting. "But we make the arrangements for these meetings five or sometimes six years out," when times looked a bit rosier.

Yatros recounted that the CUSO's leadership had solicited the opinions of its board members and others from its member credit unions about whether it should press forward and all had said not to cancel the event but instead to use it as a springboard to encourage greater persistence and innovation among member credit unions.

Yatros opened the event, a role that other key PSCU leaders performed at different times, because long-term PSCU CEO, David Serlo, was absent from the meeting due to health concerns.

Instead, Serlo addressed the group via a video presentation he had recorded days before, after finally deciding that the length of the flight precluded his attending, according to the CUSO.

Serlo did not reveal the nature of his illness, but PSCU spokesman Merry Pateuk insisted that he was recovering and had come back to work.

Looking wan and thin but speaking with a very strong voice, Serlo told the meeting that his illness had afforded him a lot of time to reflect on both the ephemeral nature of some things, such as economic crisis, and on the enduring nature of others, such as the bonds credit unions were building with their members through these times.

He said his reflections about the news he had been reading and hearing had convinced him that PSCU could best serve its member credit unions by sounding a clarion call to reach for new members and set new goals, even through the downturn.

And there was a good deal to celebrate. Bill Sheedy, president of the America's for Visa Inc., described how credit union's had grown in importance as Visa issuers (see related story this page).

But even with as much good news as Sheedy offered, the conference's overall tone remained bleak, largely on account of three of its main speakers who formed a triumvirate of former bureaucrats and elected officials, each with a slightly different but nonetheless difficult message.

Former Treasury Secretary John Snow took the podium first. Addressing the meeting on April 28, Snow drew a few chuckles as he recounted details of his experiences as Treasury Secretary under President George W. Bush, recalling at one point how he had been told by a member of the House of Representatives at a hearing that he should be impeached.

"But since I had only been confirmed and sworn in four days previously, it was hard to imagine what I had done in only four days that would have been impeachable," he said.

Snow used the story to help illustrate one of his points that a "poisonous" and "evil" atmosphere that had begun to overtake the leadership of the federal government had reached a level even then to impede leaders' ability to make the sorts of hard political and economic decisions that were needed. It has only grown worse since, he said, and it represents a barrier to managing the most recent economic problems.

Snow situated the contemporary crisis firmly in what he called a global trade imbalance between China and the United States. America's apparently inexhaustible demand for goods made in China, many of which it purchased on credit, had helped draw many Chinese people out of poverty, Snow explained. But it had also driven U.S. interest rates down as the Federal Reserve under Chairman Alan Greenspan tried to both keep the cost of financing America's debt load at a manageable level.

These low interest rates caused Chinese and other money managers around the world to seek higher yields elsewhere, including the U.S. mortgage markets through mortgage-backed securities. That flow of ready money seeking better returns had, in turn, had also helped fuel the housing bubble because an abundance of relatively inexpensive money inflates the perceived value of assets.

The result, Snow said, was the housing bubble and all the related problems that now bedevil U.S. policy makers.

Snow maintained a more or less pessimistic short- to mid-term view of the policy options. The measures that the U.S. and other governments had to take to alleviate the crisis, flooding money into the economy, for example, which Snow called a necessary measure, had left the U.S. susceptible to significant and even dangerous inflation.

"Government's love inflation," Snow said, "because it's the one way they can afford to pay today's obligations-with significantly less expensive dollars tomorrow."

But inflation, in turn, demands significantly higher interest rates, so it becomes steadily more difficult to gain control of the economic situation, he explained.

But Snow also drew some applause from the credit union audience when he endorsed raising the cap on credit union business and commercial lending and said he hoped the efforts to raise it would succeed.

"I hope your efforts [to raise the cap] prevail," Snow told the attendees, recounting how as treasury secretary he drew the ire of banking groups by not backing an effort to tax credit unions.

"When you tax something, you have less of it, and we need more credit union activity, not less," Snow said, amplifying his previous observations that credit unions have money to lend and "we need lending in this country."

Former Speaker of the House Newt Gingrich picked up on several of Snow's themes and also drew applause when he recounted that his wife, Callista, was still a member of a federal credit union on Capitol Hill.

Gingrich, was the third member of the triumvirate to speak, and he addressed the group on April 30. But where Snow had stuck to a uniformly nonpartisan theme and couched his remarks in economic terms, Gingrich placed his remarks in both an economic and cultural context. In his analysis, the problem was not only that the U.S. government and many others had spent beyond their means, but that the U.S. was losing or had lost the culture of self-reliance that it would need to find its way out of dilemma.

In Gingrich's view, Americans will need to change their approaches to a number of different problems in order to continue as a world power.

First, he argued that Americans needed reform their government and other institutions so that they will be nimble enough to keep up and take advantage of coming changes in technology. He noted that the average smart phone of today has as much computing power as a desktop computer had as little as two years ago, and he contended the way government is currently configured it will not keep up.

Finally, he warned that "Government has become the fourth bubble," arguing that government has become too large and complex to be accountable.

The first bubble was the dot.com bubble, Gingrich said. The second was the real estate bubble and the third is was the Wall Street bubble, both still ongoing. The fourth bubble will be government finance and the amounts of sovereign debt that the U.S. and other governments around the world, particularly in Europe, have built up and which may no longer be able to find investors. When that bubble pops, Gingrich warned, it may be the worst of all since there are few, if any, mechanisms available to remedy the problems it will create.

It fell to Dennis Dollar, the third triumvirate member and the only one to speak from a specific credit union perspective, to lighten the message. Dollar, who spoke between Snow and Gingrich, opened with the observation that he had been glad to join the "parade of has beens" when he had been told who the other speakers on the program would be.

Dollar spent a little time acknowledging the challenges that CUs face but also urged that they don't focus only on the negative news. For example, he noted that five corporate credit unions came through the crisis with little or no impairment to the capital. At a time when the NCUA is looking at how best to restructure the corporate credit union system, it might be good to focus on those five and look at what they did differently that preserved them from making the errors that others did, Dollar said.

He also noted that the final say on the newly restructured corporate credit unions would rest with the natural person credit unions that might decline to recapitalize the new system if it is not restructured in a sustainable way.

Dollar urged more credit unions to look into the use of CUSOs as both a means of income growth and as a way to help cut costs. He endorsed shared branching as a wholly credit union strategy for expanding the industry's reach and urged credit unions to take advantage of the times that have left many consumers disgusted with credit union's competitors.

Dollar declared at one point that "credit unions are dating change but haven't decided whether we want to marry it yet."

But the problems he outlined were significant, predicting at one point that the number of credit union in the U.S. will fall by 2,500 by the middle of the decade. "I would not be surprised if we saw only 5000 credit unions by 2015," Dollar said, adding that the current economic times had created circumstances where it could make sense to merge two healthy credit unions.

He criticized the NCUA for its current policy that requires at least one of the merging credit unions to be "almost at death's door" before the merger can go forward. This policy almost guarantees that the share insurance fund faces additional risk that could be prevented if mergers are allowed before one of the credit union partners suffered sharply reduced capital.